Govt Finally Tuned into Market Rhythm

During the week, markets responded euphorically to Government's 1st mini fiscal stimulus but this news fizzled out by the end of the week. Global markets too were in a similar consolidation phase awaiting big triggers on geopolitical issues. The economic condition is very fragile but the Government is indeed trying to stabilize the same through various fiscal and monetary incentives. The latest move to consolidate PSU banks, GST refunds within a specified time by the Government speaks a lot about their intent to lubricate and boost the economy in whatever way they can. The Government has atlas swung to action which can really stabilize the Indian markets at these levels given the mutual fund inflows are still encouraging and FPI selling velocity is reducing.

The Government seems to have assumed the role of a wicket-keeper and is ready to help industries in whatever way they can. Be it the proposed scrapping policy for automobiles, easing of FDI investments, increasing the tap of liquidity to NBFCs, subsidies to incentivize exports are all in the right direction which should help revive the economy albeit with a little lag, However, there can be unexpected international negatives that can impede the revival process but on the whole the markets are stabilizing.

Events of the Week:

Much talked about bounty by the RBI to Government in the form of higher dividends is dubbed to be another stimulus in the making which will help the Government tide over constraints in doing capex to revive growth. The Government's target of disinvestment of Rs. 90,000 Crs, in a subtle way will be met with incremental dividend of Rs. 54,000 Crs from the RBI which the market participants should thank for as that much liquidity will be saved from the secondary market.

Technical Outlook:

Nifty50 is entering a stage of consolidation phase with reduced velocity on the downside. Market is trying to gain strength and bounce from its oversold territory but selling resumes on the higher levels as well. Nifty50 is expected to oscillate in the range of 11190 on the upper side and 10800 on the lower side. However, 11350 levels would be good resistance to cap the market, but markets in general are expected to remain sideways in the coming week therefore, traders should refrain from taking aggressive positions.

Nifty50 Update 30 August 2019

Expectations for the Week:

The week ahead would be lackluster and there will be a dearth of triggers from the corporate side, therefore international triggers could be the driving factor. Inherently markets seem to be stabilizing, although bulls and bears are equally poised in terms of their strength but given the beginning of a new expiry, bulls should have an upper hand as majority of the weak hands are out of the market and bears could run for the cover, in case the Government or other factors improve the sentiments of the market. Investors should ideally begin systematic investments in small and midcap funds/stocks such that 20% of their liquid capital is invested in the next 6 months in a staggered manner. Nifty50 closed the week at 11023 up by 1.8%.

Greed to replace Extreme Fear very soon!

The week witnessed another bloodbath raking along with it all the heavyweights on the Street like Reliance Industries whose AGM effect just withered away within no time. Strong bastions such as ICICI bank, Bajaj Finance and the likes also witnessed heavy selling but by the close of the week, smart recovery in broader markets establish that the peak fear is behind us for now and it is hopefully time to become greedy. Indian markets had fallen by 2.6% in the month of August, however the Chinese market which is considered to be the most affected by trade war had fallen by only 0.39%. The quantum of heavy selling has also reduced, albeit they are still selling. Everywhere the front page headlines are fairly pessimistic which makes a reasonable case that being on the short side would lead to being caught on the wrong side. It is therefore time to set yourself apart from the herd and enter longs in some of the beaten down stocks.

Investors need to think clearly and not get coloured by the commentary of companies' managements. To assume that a Rs. 5 biscuit is not being bought due to economic slowdown on the pretext of high taxes is a big mockery since FMCG companies have recorded sound single digit volume growth even in this quarter. Such news spread fear but at the same time opportunities do surface in companies like Britannia when you think unbiasedly. Hence, during negative sentiments investors need to take every statement with a pinch of salt.

Events of the Week:

Companies such as CG Power voluntarily come out with wrongdoings only during extreme pessimism. In a way, this phase will bring all the dirty linen out in the open and clean up the system for the next bull run. Currently, every small and midcap company is beaten down on the presumption that there is likely some mischief in them.

Technical Outlook:

Nifty50 has swiftly made an intraday V-shape recovery on Friday which points out to a sustained bounce in the short to medium term. It has most likely taken support off its January lows which has multiple support levels. Recovery up to 11,100 can be reasonably expected provided international markets donot play spoil sport. Traders can go long by keeping Friday's lows as stops.

Nifty50 Update 23 August 2019

Expectations for the Week:

Mr. Market has given up hope that the Government might come up with injections to prop-up the economy and it seems to be factored in for now. Markets seem to be coming out of a fear spell which had gripped them since the beginning of August. Indian bourses should give opportunities to short term traders but some amount of money can be allocated by long term investors at the current levels as well. FMCG, private bank, pharma sectors should be looked at by conservative investors whereas investors with a higher risk appetite can look at buying selective metal plays and cement stocks. Nifty50 closed the week at 10829, down by 1.97%.

Mr. Market Forces Government to Act

Markets continued its wild swing with a downward bias by pulling down the heavy weights too with itself. However, now local factors have largely been discounted for and there are no unknowns yet for causing further pain on the bourses. Nonetheless, any negative cues from global countries can further dent Indian markets too but the chances of that being are low currently as the Asian markets are slowly emerging resilient in the middle of adversity in the US. Too much is talked about inverted yields and the impending recession but Mr. Market is smart enough and has already factored in these factors. The downhill journey of 1000 points has finally woken up the Government to act. A stimulus is expected to be announced which can reverse the markets in the short term. Historically Governments act at the tail end of the economic downturn which in many cases has seen a positive impact on the stock market. This time it will be interesting how the stimulus causes a turnaround but till that time markets should hold on to its feet.

Gold has become a crowded trade with majority of hedge funds increasing their long bets in contrast to Dec-2017 when the very same guys had maximum short positions after which gold started its upward ascent. Also, since gold is in the process of making an intermediate top means that equities have made an intermediate bottom. It is risky from a trading perspective to be long on gold and short on equities, in fact a reverse would be a far safer play.

Events of the Week:

Paradox in the stock market this week - During bear markets when companies announce expansion plans the stock gets hammered but during bull markets the same expansion plans are cheered. Balkrishna and Endurance Technologies are live examples of such paradoxes. When both companies cancelled their expansion plans, there was some respite on the stock price which stabilized. However, that could be detrimental to the long-term future of the Company but in the short-term the stock has satisfied the traders at the cost of long term investors.

Technical Outlook:

Market is trading in a broad range of 500 Points in Nifty50. On weekly chart it has made a hammer on the closing basis indicating a rally in the short term. Indicators are deeply oversold making a possibility of a bounce even stronger. Market will continue to remain stock specific and range bound for some more time. Traders are advised to be cautious but selective longs can be initiated on stocks trading above 200 EMA.

Nifty50 Update 16 August 2019

Expectations for the Week:

The result season has come to an end and majority of the companies delivered a disappointing quarter. With the slowdown looming on the economy, the Companies could do very little to revive this quarter and are now mostly dependent on the Government to boost sentiment and bring about a change at the grass root level. Markets are likely to receive some boost next week due to Government's impetus unless the trade war issue intensifies further. Risk taking investors can get into certain pockets of quality companies for the time being but otherwise remaining on the side lines would still be a better option. Nifty closed the week at 11047.80, down by 0.55%.

A tussle to Watch-FPIs and DIIs

After witnessing ultra-pessimism, equities made a smart recovery pinning hopes on the Government to grant relief in the form of reduction in FPI surcharge tax which may or may not happen. Such sharp rallies are often a result of some pep talk or some relief measure which often fizzles out trapping the bulls who bought on the hopes that a new rally will begin. For the fact that Mr. Market was so deeply oversold, a rally was in any case expected. So long as gold depicts strength it would be safe to conclude that people still have lower allocation in equities as gold and equities have an inverse correlation to each other and whenever there is less faith in equities, the Street turns towards gold as a safe heaven. That is the reason FPIs have sold Rs 8603 Crs in equities month to date which actually have been countered by Indian domestic retail investors who have bought Rs 8113 Crs of equities in the same period. As it is a close tussle between the two, who would eventually outsmart the other only time will tell.

In the short to medium term, the bourses seem to have assimilated all the poison and negative factors from the economy. Slowdown has also been well discounted for including the trade war concerns which makes an ideal case for markets to show short-term rallies. Metal prices too have shown knee-jerk reactions to trade wars but for a fact consumption will not stop irrespective of who imports/exports. However, underlying stock prices do offer contra buying opportunities given the risk of cyclicity which may further dampen stocks but when cycles turn the returns would be far above average in metal stocks.

Events of the Week:

RBI's latest unconventional rate cut by 0.35% and allowing increased exposure limits of banks to a single NBFC is a bold move in favour of lubricating the economy whose effects will be seen in the next quarter. Markets were in urgent need of Government intervention and this decision to take pressure off the bond markets and reduce the cost of capital in the economy was necessary in order to kick start the investment cycle from the private sector. This policy will percolate liquidity into the system and provide immediate relief to the existing crises.

Technical Outlook:

Nifty50 has made a hammer like pattern witnessing a sharp bounce from the lows. The rally is not supported by good volumes and therefore early to call a major bottom. However, the market was deeply oversold and therefore the bounce was expected. Selective buy on declines should be the strategy for the traders, however markets will face strong resistance at 11450.

Nifty50 Update 09 August 2019

Expectations for the Week:

Markets will see speculative swings given that there are no important events ahead be it the local or global factors. Falling bond yields, currencies, trade wars, corporate results, domestic stimulus etc are all done with. Now the market participants will in a way filter stocks and sectors that are promising and have delivered good numbers by giving them thumps up by making them rise while the weaker stocks whose fundamentals have deteriorated will decline. Selective private sector banks now offer good value to buy and autos will offer sell on rise opportunities in the coming weeks. Pharmaceuticals too, given the positive surprise in numbers, offer a value buying opportunity. Investors may selectively invest even from a short to medium term perspective in the above-mentioned sectors. Nifty50 closed the week at 11109.65, up by 1.02%.

Time to Cover Shorts

Markets continued to bleed this week too wherein across the board selling was witnessed irrespective of the quality of the underlying businesses. To add to it, auto numbers again disappointed the Street with Maruti being the biggest shocker having reported a 33% YoY decline in its July auto sales. Local woes were at its peak but now even global factors have started to exert negative pressure on the market. Dow Jones has begun its downward descent from its lifetime highs despite Fed reducing interest rates by 0.25% with a dovish outlook. All is not well with global equities as an asset class but gold can be a defensive play given that a reversal in interest rate cycle has begun. Active investors seeking higher returns must allocate a good chunk of their portfolio approximately 30% to gold and lower their equity weightage in order to sail through these testing times.

The selling spree in India can be attributed to the higher taxation on trust entities of FPIs combined with the slowdown in the economy. We think soon the Government may act by diluting the excessive provisions in the law. That may act as a relief, for that matter, any reversal in the Budget provisions which was taken negatively by the bourses might bring about a relief rally arresting the fall.

Events of the Week:

Zee's recent deal for a 11% stake with Oppenheimer hasn't been cheered by the Street as the business conditions are so bad that a fantastic business such as Zee couldn't even get at a 25% premium. Also, instead of benefits of a strategic investor to add synergies of vast global presence and a higher open offer price, the deal was signed with a financial investor, belying the hopes of open offer for minority investors. Nonetheless, we expect the deal to put some pressure on the debt funds since the recovery for now is to a lesser extent than expected.

Technical Outlook:

Nifty50 has swiftly moved south with higher velocity, decisively breaking the rising trend lines. However, markets are in oversold territory which can lead to quick upward short covering rallies. Volatility has increased giving intraday traders good opportunities provided they are on the right side of the market. Traders may cover their short positions and wait for rallies to create further short positions. Long trading positions should be avoided from trading perspectives.

Nifty50 Update 02 August 2019

Expectations for the Week:

The vertical waterfall that the market witnessed may get a sharp bounce and witness short covering if the Government proactively acts in soothing the nerves of the bourses. However, it is not the time for bottom fishing and all rallies should be taken as an opportunity to raise cash in the portfolio levels. It is extremely difficult to identify bottoms when there is liquidity crisis. The very same analogy was observed in the 2009 crash due to the subprime crises. But for the moment market has settled, relief rally is expected from these levels. Nifty closed the week at 10997, down by 2.54%.